PepsiCo, Inc. (U.S. based MNC) will receive 350,000 euros in one year. The spot exchange rate today is $1.17 per euro. It observes that 1. The one-year interest rate for euros is 4%, and the one-year interest rate for U.S. dollars is 2%. 2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.15 per euro, and a premium of $0.02 per euro. 3. In the forward market, the one-year forward rate exhibits a 3% discount from the current spot exchange rate.

Question 1 (5 points) How should PepsiCo utilize the forward market to hedge the exchange rate risk for its future receivables? And what shall be the amount received based on this hedging strategy? (Note: PepsiCo can only buy or sell the forward contract at the forward rate available in the forward market described in bullet 3.)

Question 1 options: Sell a one-year forward contract for the amount of 350,000 euros at the forward rate of $1.2051. One year later, PepsiCo will fulfill its obligation and receives the amount of $421,785. Buy a one-year forward contract for the amount of 350,000 euros at the forward rate of $1.2051. One year later, PepsiCo will fulfill its obligation and receives the amount of $421,785. Buy a one-year forward contract for the amount of 350,000 euros at the forward rate of $1.1349. One year later, PepsiCo will fulfill its obligation and receives the amount of $397,215. Sell a one-year forward contract for the amount of 350,000 euros at the forward rate of $1.1349 One year later, PepsiCo will fulfill its obligation and receives the amount of $397,215.